Och Ziff In Trouble: AUM Plunges After A Record $4.8 Billion In January Redemptions

One of the world’s largest, public hedge funds, Och Ziff, gave active managers around the globel more reasons for concern this morning, when it reported results today which showed distributable earnings of $7.5 million, or one cent a share, in the quarter compared to a loss of $36.1 million, or 7 cents, a year earlier. For the full year, the company reported a loss of $121.3 million from a profit of $251.9 million in 2015. Revenue tumbled from $342.8mm to $281.3mm. However, the flashing red headline is just how much AUM the recent underperformance and legal problems by Daniel Och’s investment vehicle have cost him.

As Bloomberg reports, Och Ziff suffered withdrawals of about $13 billion over the last 13 months as the company settled a five-year bribery probe and saw its founder Dan Och singled out by regulators for ignoring red flags and corruption risks.

Clients redeemed $8 billion in 2016 with an additional, and very concerning, $4.8 billion in the month of January. The outflows were concentrated in the multistrategy funds, the company said Wednesday in a statement. Some of the asset declines were offset with performance gains, including a 3.8% return for its biggest multistrategy fund last year. Assets under management for the firm decreased to $33.6 billion as of Feb. 1 from $43.7 billion a year earlier. The hedge fund had peaked at the end of 2014 with nearly $50 billion in AUM.

That said, last November, OZ did want that it expected fourth-quarter redemptions to be higher than usual because of the settlement “and the general exodus of institutional investors from hedge funds.” Pensions for Rhode Island, New Jersey and Goldman Sachs are among those that trimmed or exited their investments in Och-Ziff last year. However, the unexpected, record surge in January redemptions prompted some market watchers to wonder if the accelerating withdrawals may not prove terminal for the once iconic hedge fund.

Adding insult to inury, Och Ziff also saw its bond rating cut to junk on the back of the withdrawals and a reduction in management fees for clients to an average of 1.01% from 1.23%.

All this has slammed the stock: the publicly-traded firm lost almost half its value in the stock market in each of the last two years. The shares closed at $3.63 on Feb. 14.

Keep a close eye on ongoing OZ redemptions: as Bloomberg concludes, the combination of lower assets and revenue led to an unexpectedly high leverage ratio for Och-Ziff, which “could see another ratings downgrade this year if outflows continue and its debt ratio edges higher, S&P Global Ratings said Jan. 5.”